Although the slump in markets has caused many investors to panic and sell out this week, history shows that immediately after a crash is usually the best time to buy into equities. Anyone who is thinking of taking this route and who wants more from a stock than the prospect of a dead cat bounce may wish to look at the following weekly share-tip roundup from Trustnet Direct.
Tuesday
Wolseley – Buy
On Tuesday, Tempus said investors should buy plumbing and heating product distributor Wolseley for the long term. Shares may be trading off recent highs, but this reflects a temporary blip rather than any ongoing issues, according to the column. A mild winter means boiler failures have been less frequent, while the general consensus is that UK consumers still don’t have the confidence to increase borrowing for domestic upgrades such as a new kitchen. The company has divested itself of various loss-making operations and is building an ever more dominant position in the US through its Ferguson operation. With the stock trading on a multiple of 13.5 and yielding 3 per cent, it seems to hold good potential.
William Hill – Sell
Questor said investors should sell William Hill, pointing out consolidation among rivals means it is going to be a tough year ahead for the bookmaker. Mergers have been driven by a desire to improve profitability in a sector that is being squeezed on multiple fronts, but with profits falling and the company having had a faltering start with its new mobile app, the outlook is far from rosy. Add to that the fact shares currently trade on 16 times earnings and the company doesn’t look cheap.
Wednesday
Unilever – Hold/Buy
There was a mixed outlook for Unilever on Wednesday. Questor recommended holding on to the multi-national after shares rose on Tuesday following some well received earnings news – despite the fact there was a fall in headline profits and an assessment for the year ahead that highlighted concern over volatility. Emerging markets are key to the company’s growth, so any slowdown here could be a cause for concern, but the stock is a classic defensive play. It currently trades on 21 times earnings and remains a good dividend payer. Having comprehensively outperformed the wider index during the sell-off of the last couple of weeks, Questor said the stock remains an attractive pick.
Tempus was even more optimistic about the prospects for Unilever. It pointed out that despite the risks posed by emerging markets, the company is cutting costs hard, turning the screw on pricing where it can and adding higher margin premium brands to the portfolio, too. The column noted that some analysts have expressed concern over rising debt levels as a result of recent acquisitions, but the verdict is that they don’t look excessive. The company has a proven track record of navigating choppy markets, making it a buy as far as Tempus is concerned.
Thursday
JD Wetherspoon – Sell
Sell JD Wetherspoon, was the recommendation from Questor yesterday. The company is being hit by a double-whammy of rising wages as a result of legislation, pitted against price cuts to get punters through the door. These lines were laid bare with Wednesday’s update as operating margins fell to 6.3 per cent from 7.4 per cent and shares slid by 10 per cent as a result. The company is writing down some property values and is fighting a battle against a proliferation of other high street eateries. Expansion plans are also sluggish, making the 16 times rating difficult to justify. The column suggests that even with the current discount, the share price shouldn’t necessarily be seen as a buying opportunity.
SDL – Buy
Tempus tipped SDL, a company many investors had high hopes for a few years ago when it was the UK’s second largest pure software player. It was thought the acquisition of Alterian would take the business into a new league, but this didn’t map out as planned. There is now a return to focus – it is the third largest player in the global language software market, but with the biggest only having an 8 per cent share, there’s scope for expansion here. The column feels that shifting back to the company’s roots could hold great things in store.
Friday
Pearson – Sell
Questor recommended selling Pearson earlier this morning. Shares soared yesterday following an earnings update that saw a pledge to maintain dividends and cut costs. However, the column warned investors not to chase the 7 per cent yield – there’s the risk that some hefty write-downs will be necessary, while the company is struggling to hold on to US education contracts. The column suggests holders of the shares who have watched them halve in value over the past 10 months should use this opportunity to sell out.
Chemring – Sell
Tempus said investors should sell out of aerospace and defence firm Chemring. The company announced it would tap shareholders for a rights issue yesterday, along with some disappointing annual results. Falling oil prices are taking a toll as a number of its clients are from the big producer nations, while more stable contracts from the US won’t contribute to the bottom line until 2017 and 2018. There are too many unknown factors here to see yesterday’s sell-off as a buying opportunity.
